An Oil firm listed on the GSE has presented the following cashflows for the next five years. Year CF to Equity Interest Exp (1-tax rate) CF to Firm 1 GH¢50 GH¢40 GH¢90 2 60 40 100 3 68 40 108 4 76.2 40 116.2 5 83.49 40 123.49 Terminal Value GH¢1,603.00 GH¢2,363.01 It was discovered by the Finance Controller in the firm that the cost of equity is 13.625% and the firm can borrow long term debt at 10%. (The tax rate for the firm is 50%). The current market value of equity is GH¢1,073 and the value of debt outstanding is GH¢800. Required: i) Estimate the value of equity in the firm now. ii) Estimate the value of firm now.

An Oil firm listed on the GSE has presented the following cashflows for the next five years. Year CF to Equity Interest Exp (1-tax rate) CF to Firm 1 GH¢50 GH¢40 GH¢90 2 60 40 100 3 68 40 108 4 76.2 40 116.2 5 83.49 40 123.49 Terminal Value GH¢1,603.00 GH¢2,363.01 It was discovered by the Finance Controller in the firm that the cost of equity is 13.625% and the firm can borrow long term debt at 10%. (The tax rate for the firm is 50%). The current market value of equity is GH¢1,073 and the value of debt outstanding is GH¢800. Required: i) Estimate the value of equity in the firm now. ii) Estimate the value of firm now.

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter15: Capital Investment Analysis

Section: Chapter Questions

Problem 15.1.1MBA

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An Oil firm listed on the GSE has presented the following cashflows for the next five years. Year CF to Equity Interest Exp (1-tax rate) CF to Firm 1 GH¢50 GH¢40 GH¢90 2 60 40 100 3 68 40 108 4 76.2 40 116.2 5 83.49 40 123.49 Terminal Value GH¢1,603.00 GH¢2,363.01 It was discovered by the Finance Controller in the firm that the cost of equity is 13.625% and the firm can borrow long term debt at 10%. (The tax rate for the firm is 50%). The current market value of equity is GH¢1,073 and the value of debt outstanding is GH¢800. Required: Estimate the value of equity in the firm now. Estimate the value of firm now.
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